Student loans — to default or not?

MainGate

Did you read the Op-Ed in the New York Times, “Why I Defaulted on My #StudentLoans” [and how you can too]? As I was reading it, I wondered, how many people default on student loans, intentionally? How would we capture such data? Most importantly, how will we address the problem of student debt?

Ensuring fair access to tertiary education is critical to the political health of a democracy. 40 million Americans face a whopping $1.2 trillion student debt load. This is not just a problem for the individual borrowers. Rising student debt risks undermining economic growth. Furthermore, an access model built on interest-bearing loans has clear racial implications, producing a disparate impact on minority access to higher education, while rising tuition costs also lead to a drop in diversity on campus.

The banks seem to think the solution is improved financial literacy, but financial literacy will not solve the problem. There are glaring structural issues contributing to the current student loan crisis. For example, banks enjoy access to loans from the US government with low interest rates, ranging from 0% to 1.25%. Students do not receive such a sweet deal. Federal student loan rates currently range from 4.29% to 5.84%. The US government shouldn’t treat students as profit centers.

Other countries ensure or facilitate access to a thorough and quality education without requiring their youth to mortgage their lives. Australia’s experience might offer some lessons for the US. Other countries not only offer us insight into how to do things differently, they also offer cheaper alternatives. If things don’t improve, more US students may choose to get a free university education in Germany, and those intent on studying to become doctors without crippling debt could pursue their dreams by studying medicine in Cuba.

What about Americans already crushed by student debt? They too behold glimmers of hope. Some US politicians are not just declaiming on the need for change, they are working to change the legislative landscape governing student debt. President Barack Obama floated the idea of making it easier to forgive student debts through bankruptcy. A variety of proposed solutions from Left to Right are being debated. While some Brookings analysts suggest the problem is not dire, even the Wall Street Journal presents it as a grave problem, so it is a hopeful sign solutions are being advanced.

If the politicians do not succeed in their efforts, student loan debtors can always hope the the debt-resistance collective Rolling Jubilee will liberate them of their debt. Leveraging free market principles for maximum impact, the collective launched Strike Debt, an initiative through which they raise money via donations, use the donated money to buy student debt, and then abolish it; to date, spending little over $700,000, Rolling Jubilee were able to buy and forgive almost $32,000,000 of student debt. (Curious about how? Check out the Debt Resistors Operations Manual.)

 

 

Related:

• Choosing where to go to school? First, check out NACAC’s website.

• 10 tips to help you pay off your student loans smarter.

• Eric MacKnight’s graduation speech advice we could all use.

13 student loan terms you should know.

• Help you can use to make informed financial decisions paying for college.

• How to manage your student debts payments based on a % of your income.

Why financial literacy fails (and what to do about it).

• College used to be affordable, so what happened?

• For-profit colleges have been in the news lately, especially with regard to student loans.

• Financial literacy is not just a problem for students.

• For the wonks

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